India set for $168 bn mega bank as HDFC merger nears

New Delhi: The merger of India’s most valuable lender and the nation’s largest mortgage financier to create what could be the world’s fifth-most valuable bank is inching closer to completion, with just one key step remaining.

Announcement of the so called ‘cut-off day’ set for investors for the swapping of shares of Housing Development Finance for HDFC Bank is expected within three weeks.

The merged entity is likely to trade under the HDFC Bank ticker before July 20, bringing an end to the process that began in April 2022.

The merger is unprecedented in India, creating a bank worth $168 billion and impacting over tens of millions of customers and shareholders across the two companies apart from group insurance and asset management businesses.

A central team, with 3 members from each company, and nearly three dozen committees worked on a business integration plan. Meanwhile, legal approvals were sought from shareholders, banking, securities market and competition regulators as well as stock exchanges with the final nod granted by the company law tribunal in March.

The approvals got done in good time and the integration of technology platforms is at an advanced stage, according to chief executive officer of the mortgage lender Keki Mistry said. “The target is for the merger to be effective early July,” he said. Once the merger is effective, a cut-off date will be announced to determine HDFC shareholders eligible to receive HDFC Bank shares. HDFC shares will stop trading on that date and it would take a week or two for allocation and listing of new shares.

HDFC Bank will allocate 42 new shares for 25 shares of HDFC. The mortgage lender said it will try to time the record date to ensure no gap takes place between HDFC shares being suspended and HDFC Bank shares being allocated to its over 740,000 shareholders.

A day before the record date will be the ex-date which marks the price adjustment between the two merging companies. On the ex-date, the HDFC Bank share price will adjust to incorporate the value of HDFC. This is important for key stock indexes that include the two companies, as well as overlying index funds and ETFs.